The similarities are eerie. In 1990, the United States envied
Japan. After decades of rapid economic expansion, the Nikkei
average of Japanese stocks reached a new high of 38,915 on New
Year's Eve 1989. Japanese real estate had appreciated so much
during the 1980s that, at one point, the city of Tokyo was said to
be worth more than the state of California. Japanese companies were
thrashing U.S. rivals in semiconductors, automobiles, consumer
electronics and other industries, while cash-rich Japanese
investors purchased American icons like Rockefeller Center and the
Pebble Beach golf course. Japanese business was held up as a model
to the world, and readers snapped up tomes on Japanese management
practices.

The year 1990 marked the end of Japan's ascendancy. Over the
next two years, the Nikkei plummeted 60 percent. Real estate values
were cut in half by 1996. The long-booming economy entered equally
persistent recession and stagnation. A decade later, Japan's
situation has changed little, with few prospects for the country or
its style of business returning to dominance soon, if ever.

Ten years later, the United States found itself in a position
much like Japan's in 1990. In January 2000, the Dow closed at a
record 11,722. The United States led all comers economically and
technologically-it could even claim to have invented the most
important business playing field of the day: the Internet. The
American way of business, a mix of aggressive entrepreneurship and
conservative accounting, was the new model.

The question is: Given the Dow's fall since early 2000,
given the bursting of the dotcom bubble, given the accounting
scandals rocking U.S. companies-could Japan's fate happen
here?

Perhaps the most important difference between current U.S.
problems and Japan's downward spiral is the willingness of
government policymakers to tackle unpleasant but necessary
tasks.

"Unlike Japan, the U.S. has been more willing to recognize
reality more quickly," says Gregory P. Wilson, a principal
with consulting firm McKinsey & Co. and co-author of
Dangerous Markets: Managing in Financial Crises (Wiley), a
manual on running companies during economic meltdowns. Wilson
points to the 1980s savings and loan scandal, when Washington-based
regulators moved relatively quickly to close insolvent institutions
and sell off their assets. In Japan, where loans secured by land
and securities are now worth a fraction of the debt, regulators
have failed to deal similarly with the nation's bank
crisis.

U.S. enthusiasm for problem solving continues today, says
Wilson. Just months after accounting shenanigans at Enron and
Adelphia Communications came to light, stock exchanges tightened
listing requirements, Congress passed a corporate-oversight law,
and some high-profile businesspeople were led away in
handcuffs.

Other differences suggest America won't slide into a
Japan-type stagnation. The U.S. lacks the system of interlocking
corporate directorates and cross-ownership of stock that
characterizes the Japanese keiretsu business consortiums,
notes Dennis Laurie, a Fullerton, California, business author whose
1992 book Yankee Samurai (HarperCollins) explored Japanese
business. Such practices, says Laurie, keep Japanese companies
rigid and unable to react to changes.

U.S. businesses tend to be more nimble and more competitive
because they're more likely to specialize and focus on core
competencies, Laurie adds. Japanese companies pursue both vertical
and horizontal integration in a wide variety of industries.
Companies like Hitachi and Mitsubishi produce thousands of products
in fields ranging from semiconductors to jet engines. Practically
the only U.S. company that does this is GE. "The Japanese
situation is that almost everybody looks like GE," Laurie
says.

Sluggish consumer spending is another obstacle Japan can't
seem to overcome. U.S. consumers, meanwhile, spent briskly
throughout the 2001 recession. Even if spending does slow, it's
unlikely to reach Japan's level of restraint, Laurie says. The
cultural bias is toward consumption in the United States, as
opposed to frugality in Japan.

There's more. Japan's economy continues to be controlled
by government policymakers, while the United States possesses a
much more market-dictated economy. Efforts to jolt Japan's
economy with public spending have only resulted in unnecessary
road- and bridge-building projects. More of Washington's new
spending goes toward high-tech defense research and development,
the same type of investment that produced the Internet.

Does the fact that we're not like Japan mean we're safe?
Probably not. "The world is always changing," Laurie
notes. "It can be very difficult to draw conclusions from what
happened in the past."